Strategy for the Telecommunications, Media and Technology industries

Telco ‘ad-blocking’: New business models for digital media required

It is difficult to remember the internet without advertising – probably because it has never been that way. The news out of Europe this week that several mobile operators plan to block advertising on their networks is setting the stage for a battle between carriers and digital media companies like AOL, Yahoo and Google or publishers who depend on advertising revenue (mobile advertising spending is set to more than double in the next 5 years from $69bn to $195bn) to monetise their content (think Mumbrella in Australia). This comes in the wake of news last week of AOL and Verizon’s merger which is for the most part driven by the desire to more succinctly target users on AOL’s publisher sites and compete with the likes of Google (Project Fi) and Facebook (Instant Articles) for digital advertising dollars.

What is ad-blocking?

Ad-blocking is not new – there are some 144 million active ad blocker users around the world (predominantly on desktop), a number that grew 70% between 2013 and 2014. There are numerous software products available to install on your browser to block advertisements on the sites you visit and these have been around for years.

So why all the fuss now? The FT reports that one European wireless carrier has installed blocking software (Shine) in its data centres and has plans to turn it on by the end of 2015. Shine believes that users will opt-in to ad-blocking services in their millions if they are offered by their mobile carriers.

Who wins and what is to be gained?

Communications service providers have the most to gain from offering ad-blocking services:

Advertising has an impact on mobile infrastructure by producing background signalling. Advertisements from a standard app or website ping antennas up to 50 times a minute. A reduction in background signalling could lead to noticeable increases in bandwidth, which is an expensive component of infrastructure.

Carriers are likely to ask for a share in advertising revenue from digital media companies like Google in return for allowing advertising to pass through to consumers. One carrier is considering the tactic of an ad-blocking ‘bomb’ to bring media to the negotiation table. This sounds absurd but there is already a precedent where Google, Amazon, Microsoft and Taboola paid the German company behind Ad-Block plus software (the most popular ad-block software in the world) to allow advertising on their sites.

Consumers are also set to gain from the ad-free services:

It has been argued that advertising can use up to 10% of a users’ monthly data allowance in pinging mobile infrastructure. Ad-blocking would reduce this ‘wasted’ data usage not to mention precious battery life.

Ad-blocking would arguably improve the user experience on the sites and apps visited.

Whilst I believe there is much to be gained from a user perspective, I am also hesitant. The advertising-content business model is fundamental to the quality of content and innovation in digital media and other digital services. Google and much smaller publisher sites are well-placed to argue that the services that consumers use require significant investment on their behalf and only exist because of advertising. Without advertising, they may not exist in the future.

So are there other business models for digital media?

In the event that ad-blocking becomes the norm there are other business models that digital media companies can turn to in order to monetise. Some clues exist already in media companies like Live Nation or Spotify. Monetising through paid content, subscriptions or services such as paid research, consulting and conferences are notable alternatives. Perhaps these will be more lucrative for niche or industry-specific verticals where broad-based media and news are likely to be less successful. For broad-based media, Facebook’s Instant Articles comes to the fore. Shine and other ad-blockers are not able to block advertising that is native to the app or website because this sits within the CMS not a third party.

It is possible, in the event of an ‘ad-blocked internet’, that Instant Articles becomes not only an inevitable option but an invaluable one for many publishers, particularly broad-based digital news and media.